12th Nov 2014 07:13
LONDON (Alliance News) - Regulators in the US, UK and Switzerland Wednesday hit five banks, including HSBC Holdings PLC and Royal Bank of Scotland PLC, with USD3.38 billion in fines over foreign exchange failings and attempted manipulation of foreign exchange benchmark rates.
The UK's Financial Conduct Authority imposed fines amounting to USD1.7 billion on the five banks, saying the banks failed to control business practices in their G10 spot foreign exchange trading operations, while the US Commodity Futures Trading Commission ordered the banks to pay more than USD1.4 billion in penalties.
The foreign exchange market is known for its size and liquidity and has daily average turnover of USD5.3 trillion, according to regulators.
The FCA fined Citibank NA USD358 million, HSBC Bank PLC USD343 million, JPMorgan Chase Bank NA USD352 million, The Royal Bank of Scotland PLC USD344 million and UBS AG USD371 million. The CFTC imposed fines of USD310 million each on Citibank and JPMorgan, USD290 million each for RBS and UBS, and USD275 million for HSBC.
In Switzerland, regulator FINMA ordered UBS to disgorge a total of USD138 million.
Earlier this month, HSBC took a charge of USD378 million over the foreign exchange investigation, more than enough to pay up to UK regulators, but not enough to meet the combined USD618 million of fines and penalties imposed Wednesday by the regulators. HSBC had specified it had provisioned only in relation to the investigation by the FCA.
At the end of last month, RBS set aside GBP400 million for regulators' investigations into the foreign exchange market, in line with the size of its fine.
Barclays PLC, which last month set aside GBP500 million in provisions in light of regulators' investigations into alleged foreign exchange manipulation, is yet to be fined. In a statement, the FCA said it will continue to investigate the British lender.
"In relation to Barclays Bank PLC, we will progress our investigation into that firm which will cover its G10 spot FX trading business and also wider FX business areas," the FCA said in a statement.
In a response, a Barclays spokesperson said it had decided against agreeing to a settlement on similar terms to the other banks.
"Barclays has engaged constructively with its regulators, including the UK Financial Conduct Authority (FCA), and the US CFTC, in this round of settlement discussions, and has considered a settlement from these agencies on closely similar terms to those announced this morning," the spokesperson said.
"However, after discussions with other regulators and authorities, we have concluded that it is in the interests of the company to seek a more general coordinated settlement," the spokesperson added.
The FCA also announced an industry-wide remediation programme to ensure firms address the root causes of these failings and drive up standards across the market.
"We will require senior management at firms to take responsibility for delivering the necessary changes and attest that this work has been completed," the FCA said.
The FCA said the fines are the largest it, or predecessor the Financial Services Authority, have ever imposed, adding that this is the first time it has pursued a settlement with a group of banks in this way.
The UK regulator said that ineffective controls at the banks allowed G10 spot FX traders to put their banks' interests ahead of those of their clients, other market participants and the wider UK financial system. The banks failed to manage obvious risks around confidentiality, conflicts of interest and trading conduct, the FCA added.
It said the failing allowed traders at the banks to behave in an unacceptable way, sharing information about clients' activities which they had been trusted to keep confidential. Traders also attempted to manipulate G10 spot FX currency rates, including in collusion with traders at other firms.
According to the FCA, the failings took place between January 1, 2008 and October 15, 2013.
The US CFTC said it has ordered the banks to cease and desist from further violations, and take specified steps to implement and strengthen their internal controls and procedures, including the supervision of their FX traders, to ensure the integrity of their participation in the fixing of foreign exchange benchmark rates and internal and external communications by traders.
It said the failings at some banks started in 2009 and continued at each bank into 2012.
According to the CFTC, one of the primary benchmarks that the foreign exchange traders attempted to manipulate was the World Markets/Reuters Closing Spot Rates, the most widely referenced FX benchmark rates in the US and around the world.
Foreign exchange benchmark rates, such as the WM/R Rates, are used for pricing of cross-currency swaps, foreign exchange swaps, spot transactions, forwards, options, futures and other financial derivative instruments.
The CFTC said that traders at the banks coordinated their trading with traders at other banks in their attempts to manipulate the foreign exchange market, using private chat rooms to communicate and plan.
The US regulator also said the banks failed to adequately assess the risks associated with their foreign exchange traders participating in the fixing of certain benchmark rates and lacked adequate internal controls in order to prevent improper communications by traders.
In addition, the banks did not have sufficient policies, procedures and training specifically governing participation in trading around the foreign exchange benchmarks rates, the CFTC added.
By Samuel Agini; [email protected]; @samuelagini
Copyright 2014 Alliance News Limited. All Rights Reserved.
Related Shares:
BarclaysHSBC HoldingsRBS.L